We met with management recently and remain positive on prospects of the company. With a sound marketing strategy (affordable price points) and strategic locations of its properties (well connected to road and rail infrastructure), earnings look set to sustain an uptrend over 2017-19E despite overall softness in the property market. A key catalyst for the stock would be an earlier launch of its Jalan Ipoh project in 2019 (GDV:RM6bn). Reaffirm BUY call with a higher TP of RM3.11 from RM3.00 (based on unchanged 30% discount to our new RNAV/share) for its attractive valuation (2018E PER of 10.2x, a 43% discount to peers) and above-sector yields of 6.3/6.7% in 2018/19E.

Targeting Affordable Market: Sound Pricing and Branding Strategy

UOA is focusing on launching property products within the affordable price range category (

Attractive Valuation as a Pure Property Developer

UOA trades at an attractive 2018E PER of 10.2x, vs. its peer average of 17.9x. Other factors we like: i) high net dividend yield of 6.3/6.7% in 2018/19E; ii) strong net cash position of RM0.32/share supporting our high dividend-payout assumption (51-64% of net profit); iii) high property development average gross margin (43%); iv) strong core earnings growth (10-33% in 2018-19E), driven by high unbilled sales/property sales of RM1.4bn/RM1.3bn at end-2017. UOA is also a top sector pick.

RNAV Enhancement

We lift our RNAV/share estimate by 3% to RM4.44, mainly attributable to i) higher 74% share of UOA Business Park earnings (GDV of RM550m) after acquiring an additional 35% stake in the project recently; ii) earlier contribution from Jalan Ipoh project in 2019E instead of 2020E (GDV: RM6bn) and iii) acceleration in sale of inventory.

Lifting Our 2017-19E Earnings, Fine-tuning Down EPS; Reaffirm BUY

We revise up our core earnings by 3-6% in 2017-19E to account for i) associate income boost from 2 commercial blocks sold in 4Q17; ii) a higher share of earnings from its UOA Business Park project (increased to 74% from 39% previously); iii) stronger contribution from United Point and Sentul Point projects; iv) new projects worth RM1.46bn (South Link, South Point) launched in 4Q17. However, with dilution from new ordinary shares (101.8m) issued for its dividend-reinvestment plan, we lower our core EPS by 3% in 2017-18E, and leave that for 2019E unchanged (offset by the higher operating profit). Reaffirm BUY call with a higher 12-month TP of RM3.11. Key risk: prolonged downturn in Klang Valley property market.

Source: Affin Hwang Research - 30 Jan 2018